Quitting your day job to join in on the Great Resignation? Welcome 👋! It’s time to follow your dreams and pursue true happiness.
Wait, you’re not doing it alone… You are actually bringing your partner along with you? As great as that can be (trust us, we know from experience), I’m sure you’ve heard the doubters saying things like “I could never work with my partner!” 🙅♂️🙅♀️
SMH! Why wouldn’t you want to work with the person you care most about in the world?
Don’t worry, we have your back because we’re in it together too. In this blog, we share what you should know about managing finances from a personal and business perspective, together.
Personal bank savings
Prior to starting our business as a couple, we saved one year’s worth of personal living expenses. The general rule of thumb for your personal emergency fund is somewhere between 3 - 6 months of living expenses. However, the reality is that you will likely start with minimal income.
Therefore, you need to give yourself enough time to build your business up into the revenue-generating machine it can be! This is why we squirreled away 1 year's worth of personal expenses to give our business time to grow before needing to take money. A flush savings account will allow you to stress less 🧘🏽 during the beginning.
Personal income and expenses
Let’s start with the easy stuff first. Your personal income will likely be significantly reduced. In fact, we both quit our corporate jobs to launch our business. Our personal income went to $0 right when we started. We were able to get side gigs along the way, but we planned conservatively meaning our projections were $0 of income in year one!
Now for the expenses. Prior to launching our business, we slashed our personal expenses for several months. This allowed us to build up our savings to hit our one-year savings goal. We redirected any surplus cash flow to our personal savings account. Once we launched our business we continued to reduce our living expenses. Our rent decreased by 50%, our restaurant expenses decreased by 75%, and our clothing budget disappeared. Sound rough? Ask yourself what’s more important: professional flexibility or the material wants in your life? Something’s gotta give.
Personal retirement savings
As hard as it can be, you may need to put saving for the future on pause during this transition. This may include no long benefiting from maxing out 401(k), receiving a company 401(k) match, equity compensation like restricted stock units (RSUs) and stock options, excess cash flow for taxable account savings, and more.
If you do decide to pair back or pause future savings altogether, you have to be very mindful of how and when you plan to “catch up.” This is actually one of the areas the entrepreneurs we work with struggle with most. How do you balance taking care of your business and your personal retirement savings? The key for us is tying the two together.
We recommend sitting down and reviewing your current and projected business revenue on a year-by-year basis. Each year, you need to project what your business revenue will be, the taxes owed on that revenue, and your business expenses. From there, you’ll be able to understand how much is left over to take care of you. This will include your personal expenses and savings goals (like starting your retirement savings back up!). By our second year in business, we were able to establish Solo 401(k) accounts. A Solo 401(k) allows you and your spouse to each contribute up to 100% of compensation up to the annual limit of $20,500 and you can make employer contributions up to 25% of compensation. In summary, the Solo 401(k) > SEP IRA.
Interested in learning exactly how we invest our money? Read our blog, How We Invest Our Money.
Business bank savings
We apply the same method for our business bank savings goal as we do for our personal bank savings. Your business bank account should have 3 - 6 months of business expenses at all times. This won’t be the case when you first start off, but it’s the goal. A strong business foundation allows you more flexibility in the short and long term.
We go into much more detail on how we structure our business bank accounts in our blog – How to Structure Business Bank Account.
Business income and expenses
Our business income was $0 to start. Easy enough – although it didn’t feel east at the time. If you have a thorough business plan and then time will be your best friend. The revenue will eventually start, which is why that personal/business cash cushion we spoke of earlier is so important. Income for us increased 232% from year 1 to year 2 and increased 70% from year 2 to year 3. Our year 3 to year 4 growth rate will likely be around 30%.
Growth is important, but sustainable growth is more important to us. You’ll learn plenty in your first few years in business when it comes to pricing of your product/service and what you actually want out of your business – are you scaling or building a lifestyle business? As you can see more and more questions will come up along the way. As one of our favorite thoughts leaders likes to say, “Your problems don’t go away, they just change”. Ain’t that the truth!
We are in a low overhead industry. Well, we aren’t those advisors that have beautiful mahogany offices or wear suits and ties so that helps. Our expenses average about 25% of our annual revenue. You have to lay out a plan for managing your business expenses. What is the annual threshold that you can afford? It’s no different than managing your personal household. It can be really easy to swipe your business card and say “Oh, I’ll deduct it” but the reality is that you are still spending the money. Your business expenses are a key component to your business thriving or flopping. It’s time to get granular and look at the numbers in detail. If you hate budgeting (who doesn’t?) then it’s time to get help.
Business lessons learned
We’ve talked numbers. If you know us, then you know it isn’t all about the numbers with us. It’s deeper than that.
You and your partner need to be on the same page financially before making this leap. We’ve seen it before where both partners are not ready to commit but are ashamed to admit it. You both need to be realistic in your expectations about revenue and expenses both from the personal side and the business side. If one of you is not willing to sacrifice in the short term for your long-term business success then we would suggest pausing on the dream until you are both ready. As a couple in business, you have more at stake in this game. Your marriage and professional success depend on it.
We specialize in working with couples in business. You should spend more time working on what you love and letting us handle the finances for your personal life and business. If you are interested in learning more about us and how we can help you, then schedule a free consultation here.
Disclaimer: This article is for informational purposes only and is not a recommendation of Fyooz Financial Planning, Natalie Slagle CFP®, or Daniel Slagle CFP®. Past performance may not be indicative of future results and may have been impacted by events and economic conditions that will not prevail in the future. Therefore, it should not be assumed that future performance of any specific security, investment product or investment strategy referenced in the article, either directly or indirectly, will be profitable or equal to the corresponding indicated performance level(s). No portion of the article shall be construed as a solicitation to buy or sell any specific security or investment product or to engage in any particular investment or financial planning strategy. Any reference to a market index is included for illustrative purposes only, as it is not possible to directly invest in an index. Indices are unmanaged, hypothetical vehicles that serve as market indicators and do not account for the deduction of management fees or transaction costs generally associated with investable products, which otherwise have the effect of reducing the performance of an actual investment portfolio.